Let’s Get Ready to Rundle
5-min read
Few firms counterpunch like Walmart. “Innovation” has a new, first-of-its-kind feel. But most stakeholder value is a function of firms benchmarking, copying, or stealing other firms’ great ideas: improving them, putting more wood/capital behind the arrow, or placing it on broader platforms.
Walmart is planning to launch Walmart+, their response to Amazon Prime. This makes all sorts of sense. Every CEO has to convince investors they should buy shares, as there is a good/great chance the equity will double in the short to medium term. So, logically, the CEO is saying they can double revenue. Even if Walmart recognized operating leverage, they may need to add $400 billion or more to their top line. So, Doug McMillon needs to add the US oil industry to his revenue line. That’s unlikely. So, what to do?
Simple, the most accretive action taken by any $10 billion or larger business is to move from a transactional model to recurring revenue. This exploits one of the fundamental flaws of our species, the inability to register time. Time flies — it goes faster than our estimated consumption of a product during a given time period. Only 18% of gym members go to the gym consistently.
In addition, the markets are a reflection of ourselves, and humans hate uncertainty. Waking up next to a stranger is exciting in the short run but exhausting in the long (see above: recurring revenue). Walmart interacts with American families transactionally, while Amazon lives in 82% of their homes. That could begin to shift with Walmart+.
If Walmart+ becomes a $5 billion division, growing (much) faster than the core business, Walmart could recast their business and register a greater multiple. This puts a doubling of the market capitalization within reach on 4-6% annual revenue growth (doable). In the last five years, Apple has grown their revenues 15% but more than doubled their market cap. How? Several factors including a bull market, monopoly abuse, and renewed growth of the most profitable product in history, the iPhone.
However, most of all, most of all … I like the way you move (couldn’t resist). The gangster factor in a trillion dollars in shareholder growth has been Apple increasing their recurring revenues from single digits to 23% of revenues. Walmart has the same opportunity to recast their multiple with a rundle they continuously enhance and refine. #counterpunch
Twitter & Subscription
Other than Facebook and Google (Genghis & Khan), a decent proxy of a media firm’s prospects is the percentage of revenues from subscription. Twitter said in a job posting that it was building a subscription platform under the code name “Gryphon.” The stock surged on the news.
Twitter’s ad-dependent revenue model not only fuels outrage and abuse, but is largely responsible for the firm’s anemic growth. Transitioning to a subscription model will free the platform from bots and dampen the toxicity that is … Twitter. In other words, the platform is on the precipice of sustainable innovation. More on why a subscription model makes sense for Twitter in my post from last month.
B*tch
It would be difficult to find a greater concentration of b*tches (privileged jerks toggling between attacks and victim complex) than the VC community on Douchehouse (i.e., Clubhouse), the social platform that brings voice to the overheard — venture capitalists. Their loudest complaint: unfair media bias against tech.
The focus of their ire last week was a young NYT journalist, Taylor Lorenz. Their claims of bias just don’t hold water. Historically, the media has idolized tech founders — the idolatry of innovators we often write about. But it does feel that the tide is beginning to turn. Are Americans starting to pay more attention to missteps in data privacy, fake news, platform design, diversity, and company culture?
If yes, it’s overdue. Our innovation economy has morphed to the monopoly economy and now the exploitation economy. Many/most of the firms that have grown shareholder value by billions in a short time have arbitraged the inability of our government, and our instincts, to keep pace with technology. On the other side of the billions of shareholder value captured by increasingly few from social media, trading, or ride-hailing apps are millions of depressed teens, election interference, and a decrease of the dignity of work (no health insurance, sub-minimum wage compensation).
We looked at the 25 most recent articles in the NYT Tech section and found that 68% of them presented technology (articles on products, applications of those products, or their founders) in a positive or neutral light. Only 32% of those articles took a negative/critical approach. We found Taylor Lorenz’s 25 most recent NYT articles to be mostly positive and to cast technology and its users as endlessly inventive. Only six, or 24% of these pieces, presented technology or tech founders in a negative light.
A small sample size, but an indicator that despite the externalities and co-morbidities of technology, the only bias appears to favor tech and VCs.
Best Friend
My best friend from college is with us in Colorado. He lives in LA, so we don’t see him much. We took my boys for dessert, and he asked my youngest, “How is your hot chocolate?” My nine-year-old, as nine-year-olds do, answered with no filter: “I don’t know, I’ve only eaten the marshmallows so far.”
Having my best friend spend time with my boys, at this age, when they roll their eyes in public when I joke, but then ask if they can fall asleep with me … is nice. Real success, what you highlight to others whose opinion you value, is not a life where people love you, but a life where you love others.
Being with Lee is so rewarding. He’s one of two people in the world who make me laugh uncontrollably, and he inspires reflection. When we were in college, his ruggedly handsome father would visit and kiss Lee on the lips. It was shocking at first but took purchase. I decided 20 years later I would kiss my boys, as long as they let me. Lee noticed it today: “They kiss you!” The only time it feels as if this all (sort of) makes sense is when my boys grab my hand or kiss me, as if it’s muscle memory.
Lee asks again, “What do you want to do with the rest of your life?” I pause, and it strikes me: “I don’t know, I’ve only eaten the marshmallows so far.”
And then we laugh.
Life is so rich,
P.S. We’re hiring for several positions, all remote to start — come join our growing team. And this week on the Prof G Show, we spoke with Richard Florida about the future of cities (thriving) and answered #officehours questions about innovation roadblocks, equity crowdfunding, and omnichannel strategy. Have a listen.
Who is this Walmart service for? If you aren’t interested in something like that you probably won’t be suddenly inclined to jump on Walmart’s offering, and if you are interested in something like that you probably already have Amazon Prime. As a consumer, why is Walmart plus attractive to me?
Great question, and for me there’s a clash of brand identities. Walmart = cheap products purposely redesigned for inferiority to achieve a lower price point vs Amazon = a selection of products low quality to high quality. And how do I feel about the impression I give when Walmart trucks stop at my house several times a week?Perception being brand, how does Walmart get past these challenges?
The service is for the hundreds of millions of Walmart shoppers that don’t use Amazon Prime. If you’re not one of them I think Walmart will be ok.
This does not apply to the UK…Wal-Mart has tried to exit the UK but were prevented from selling to Sainsbury Argos by competition authorities, so is seeking other exit options. Tesco has tried broad-based rundle in the past but has failed (and exited general mechandise&clothing online, digital media, marketplace, leaving only groceries plus GM/clothing in store, a reduced financial offer, and a largeish MVNO mobile phone offer).
You linked to the wrong song. You quoted Body Rockers but linked to Outkast.
Thank God someone is challenging Amazon. Walmart makes perfect sense. They have the capital,the infra structure and management acumen to build a very competitive brand. I enjoy all your articles. They are rich with information and insight. Sharing your family’s experiences makes them invaluable. Thank you.
Thank you for jerking me violently into my reality…I had been blindly going through life not paying attention to where I spent my money or my retirement. Love the show and your honesty!
Oh the wheels they be turning. Love this post and thank you. I’d love to work for you guys from afar. Like TO-ronto Ontario afar. All I have is my pen and penchant for all things audio, Strategy and advertising. That last one’s a dirty word I know, but who doesn’t like to get dirty every once in a while! Good fun Prof G! Thanks for the sharezies! Just G. (No Prof yet.)
You’re a good son and a good father. No matter what base you land on, that’s a solid foundation for building a life. ❤️😊
Really appreciated this one. My Dad kissed me and everyone thought we were freaks. Nice to know it was an intimacy shared by other fathers and sons. Thank you.
Touching ending to your column…my dad always kissed my brother and me (on the cheek) and I have always kissed my brother and son (who is now a bearded 22-year old). I even introduced kissing in public to my (very macho) closest best friends who are like brothers to me. This is not so uncommon in Latin culture which – although has a rep for being machista – is also probably more comfortable with being expressive and affectionate in public than “anglo” culture. I expect my son will carry on that tradition as well.
Scott, great post, thank you. This comment is semi off topic and maybe something you have raised before I started reading your posts, but you mentioned the lack of health insurance for gig workers and I have been wondering why it is that large corporations, GM, GE, Boeing, etc.haven’t gotten behind universal health care. Why do they want to be in the health care provider business with all the attendant paperwork and staffing requirements? Given that there’s no real job security anywhere anymore being able to dangle ins. as a bennie just doesn’t make sense these days. You’d think they would be lobbying the gov’t to take over the job, no? Thanks
Great post SG! I have three children, two of which are 8 year old identical twin boys. I still appreciate & love the kiss too. I had the same experience in high school with a best friend and his dad and was shocked. I see it different now. TWTR + MRR = $$$
I relish your personal stories you so openly share. My kids are the same ages as yours. virtually each detail in your Best Friend note is my life too. The news and the villains and heroes come and go. The best friends and precious, fleeting tender moments with our kids are all that matter. I’m happy for everyone who has this perspective. MR
Particularly good note this week. Thank you!
U sure it’s a CEO ‘s job to move the stock price ? Looks to me this has been generating some very nasty incentives…
Random related nuggets in response from a UK perspective Wal*Mart’s UK division (Asda) is essentially dead man walking in the UK since rival Sainsbury was (correctly) prevented from buying; squeezed between Aldi/Lidl/Iceland in term of grocery price perception where they use to own the perception (and a price war in the offing from a resurgent Tesco). Asda stepped up to the C19 plate in terms of grocery delivery execution (which is much more mature than Wal*mart offering in US it seems ). Tesco has flirted with a rundle in the past but their strategy to grow beyond groceries (and grocery delivery) has largely failed (only limited offers in mobile phone service and financial services remain and that is slim pickings to rundle with grocery home delivery). That said, expansion of grocery delivery in response to C19 may have allowed Tesco to reclaim the top spot worldwide in terms of grocery home delivery (2m+ deliveries per week across UK, IE, and Central Europe, largest market share in UK well ahead of latecomers like Ocado who structurally could not scale their physical and digital operations and created poor customer experience as a result)
I am always impressed with your ability to highlight both sides of the coin with a healthy portion of humanity and a sense of fairness KEEP GOING
Which side of the bed is the revenue receiver and revenue generator in your rr model?
So glad I found you and your Pivot Podcast. Such a down to earth, non-nonsense fresh perspective. Thank you…..
VIDEO PLEASE
Good perspective, but seems to feed the ‘guilt complex’ by those who profited from the tech boom. The VPs of Marketing for the current quasi-Capitalism are the Business Profs. They analyze the tech companies and report/teach on what seems to work to the students. Hard to complain about companies that some Profs hold up in the classroom as the way to run a business. Also, the great unwashed masses seem OK with manipulated media, sports hero worship, low pay/no benefits work. They make a tradeoff – money today from driving for Uber vs the delayed benefits of going to college and getting a skill. I made the delay choice. Most of my neighborhood friends didn’t. Hard to see how they are ‘manipulated’.
“Let’s get ready to Rundle” Lol #dadjokes
Love your perceptive and emotional take on Technology Monsters we’ve invited into our lives; extending the welcome on in like Vampires at the front door. Sending this to my Lt son on the 14 month Covid-extended Kuwait deployment from hell. Will start back with the feds in financial crimes upon US return. Know he will love almost as much as his iphone, Mac and iPad that is getting him thru base quarantine. Oh the Irony!!🇺🇸💥
He sounds like a nice man with a good family and friends. Not a bad start for one “only at the marshmallow”! Joe
When is the next episode of “No Mercy/No Malice” on VICE?
If another Pandemic arrives, could Walmart and Amazon become best friends?
Great article Prof. G. I concur with the comment on AWS. The wireless division seems to be the force of growth for Amazon, and on the retail business they have bundled the Prime Video, Books, Kindle, etc., with the grocery and technology offerings with just one membership. I believe Walmart+ will have to match big offerings, and I anticipate Mr. Bezos’ team will be ahead of the game.
You write well. Real well and with insight. “Real success, what you highlight to others whose opinion you value, is not a life where people love you, but a life where you love others.” Incredible. I thought about the origin of this philosophy. Buddha and Jesus were early teachers and practitioners of this. A key difference was when worshipped, Buddha directed them to his Dharma, his principles, Jesus pointed to the sky, his daddy. If people could just follow one of these examples.
Not sure how Walmart+ will be structured, but I can’t see me paying anything for it. Now, when I buy online from Walmart, it either ships to my home free or sometimes I have to pick it up at the store 3 miles away. I pay for Prime, but the TV access makes it feasible. I get maybe $50-$60 of merchandise from Amazon per month so if the TV feature wasn’t included I probably wouldn’t pay the $100 per year.
Coincident with your bang-on reference to the marshmallows, today happens to be my (and my wife’s) 49th wedding anniversary. We’ve only had the marshmallows so far!?!? Thx I needed that👍🏻
Another great post. Greatly Appreciate your Intellect. And love your ability to showcase your vulnerability. Super powers indeed. 2 questions: 1. Is the MSFT 365 bundle or the iPhone the most profitable product ever? 2. For the profit / market cap chart, do the figures for AMAZON exclude AWS? If not, would be best for an apple v. Apple comparison.
As a father of 4 kids, reading your last missive brought tears to my eyes. Hats off to you, Scott. My respect for you only grows.
Walmart starts to eat Amazon’s Marshmallows. Great read as ever!
Quick question Prof G, any thoughts on the GAP Yeezy deal?
Thank you for the “Best Friend “ ending. Put a smile on my face